Formalizing Small Informal Businesses in Colombia

Formalizing Small Informal Businesses in Colombia

Jurisdiction: Colombia Topic: Step-by-step path for taking an informal business (a street stall, an unregistered point of sale, etc.) into a formal structure with the DIAN (tax authority) and the Chamber of Commerce. Audience: Microentrepreneurs and the accountants who advise them.

1. Choosing the legal structure

• Sole proprietor (persona natural comerciante) — Sole proprietor ("persona natural comerciante"): the simplest option for small, single-owner businesses (e.g., a food stall). No need to incorporate a company.
• Legal entity (SAS or other) — Legal entity (SAS or other): makes sense when there are several partners, when the owner wants to separate personal and business assets, or when the business plans to grow and hire staff.
• Consolidate multiple informal points under one structure — If the business runs several informal "points" or "brands" but really has a single owner, it's usually best to consolidate everything under one structure before applying for the RUT (tax ID).

2. Registering the RUT with the DIAN

• Apply for or update the RUT — Apply for or update the RUT through the DIAN's online portal.
• Select economic activity code (CIIU) — Select the economic activity code (CIIU) that matches what the business actually does (e.g., food retail, restaurants), not a generic one.
• Choose tax regime — Decide whether the business will sit under the ordinary tax regime or apply for the Simplified Taxation Regime (RST, "Régimen Simple de Tributación").
• RST registration deadline — Registration for the RST generally must be done before January 31 of the year the taxpayer wants to be covered by it; businesses starting operations for the first time can opt in when they first register for the RUT. (before January 31 of the coverage year; new businesses opt in at RUT registration)

3. Ordinary regime vs. Simplified Regime (RST)

• What the RST bundles — The RST (Law 2010 of 2019, articles 903–916 of the Tax Code) bundles income tax, the municipal ICA tax, the signage tax, and the fire-department surcharge into a single payment, with one annual return and bimonthly advance payments. (Law 2010 of 2019, articles 903–916 of the Tax Code)
• RST gross income limit (2026) — Gross income for the prior year below 100,000 UVT (with the 2026 UVT set at COP $52,374, this is roughly COP $5.237 billion). UVT (General requirements for 2026) (articles 903–916 of the Tax Code)
• RST eligible activity requirement (2026) — Activity falling within an eligible category (retail trade, services, industry, restaurants, transportation, among others). (General requirements for 2026) (articles 903–916 of the Tax Code)
• RST tax compliance requirement (2026) — Being current on national and local tax obligations. (General requirements for 2026) (articles 903–916 of the Tax Code)
• RST exclusion requirement (2026) — Not being a free-trade-zone user, and not deriving income mainly from financial returns or dividends. (General requirements for 2026) (articles 903–916 of the Tax Code)
• RST rates (2026) — vary by activity, ranging from roughly 0.8% up to around 14.5%–15% of gross income, depending on the sector (trade vs. services). % of gross income (2026 rates) (articles 903–916 of the Tax Code)
• When RST is a good fit — When it's a good fit: the RST tends to work best when the business has few deductible costs and expenses to formally document — the typical profile of a business coming out of informality that doesn't yet keep detailed cost accounting.

⚠️ UVT thresholds and exact rates change every year and by activity; always verify against the current UVT value and articles 903–916 of the Tax Code before advising on a specific case.

4. Commercial registration

• Chamber of Commerce registration — Sole proprietors and companies must register with the Chamber of Commerce in their jurisdiction and renew that registration annually.
• Separate from RUT — This step is separate from the RUT and is usually done in parallel.

5. Checklist for the opening balance sheet of a business coming from informality

This is where the most time gets lost if it isn't organized from the start. Each informal point of sale or unit should be handled separately before consolidating:

• Cash and digital balances: physical cash on hand, plus balances in digital wallets such as Nequi or Daviplata as of the cutoff date.
• Inventory: physical count of merchandise or supplies, valued at replacement cost.
• Informally acquired fixed assets (equipment, furniture, vehicles): value them at used-market price, not at the original invoice price if no invoice exists.
• Informal accounts receivable: any credit sales or amounts still owed to the business.
• Liabilities: debts to suppliers, informal or family loans, other pending obligations.
• Opening equity: the result of assets minus liabilities; this is the business's formal accounting starting point.

6. Other formalization steps

• Electronic invoicing — Activate electronic invoicing (mandatory within a few months of registering under the RST).
• Social security — Set up the owner's social security coverage (as self-employed) and that of any employees.
• Business bank account — Open or formalize a business bank account separate from personal accounts.

Sources

Sources: Colombian Tax Code, articles 903–916 (Simplified Taxation Regime); Law 2010 of 2019; Law 2277 of 2022; DIAN transactional portal (micrositios.dian.gov.co/regimen-simple-tributacion).

Note: this content is general reference material and does not replace review of a specific case by a licensed accountant or tax advisor.

Contributed by Mauro Escudero, 318603-T.